CVS Health replaced its top executive as it warned that its coming earnings will once again fall short of Wall Street expectations, sending shares of the company down about 5% Friday.
David Joyner is taking over as the new chief executive of the struggling healthcare giant, succeeding Karen Lynch, the company said Friday after The Wall Street Journal first reported the news.
Joyner has been president of CVS Caremark, the company’s pharmacy-benefit manager, as well as an executive vice president of CVS.
Roger Farah, chairman of CVS’s board of directors, will also become executive chair.
CVS is making the changes after repeatedly cutting its forecasts for this year’s financial performance, moves that led to a 19% decline in its share price this year as of Thursday’s close, a push for changes by a major hedge fund and a board review of strategy that included the option of breaking up the company.
CVS is now planning to announce third-quarter results that will fall well below Wall Street expectations, largely due to continued issues at its Aetna insurance unit, and to back away from its most recent full-year earnings projection for 2024, issued in August. A new downgrade would represent the fourth since the company’s investor day in December 2023.
Joyner and Farah said in an interview with the Journal that CVS will now move forward intact.
“We believe that we have a really important part to play in terms of simplifying and delivering a better healthcare experience for this country,” Joyner said. CVS’s assembled assets will allow it “to actually deliver on the promises that we’ve made, and now it’s all about execution.”
Joyner will face a difficult task. Not only must he turn around CVS’s Aetna health-insurance business, but he must also contend with Federal Trade Commission scrutiny of pharmacy benefit giants including Caremark. CVS also faces longstanding challenges in the retail pharmacy business.
Glenview Capital Management, the hedge fund that met last month with CVS to propose ways to improve its operations, said Friday that it wanted to see changes to the company’s board. “We believe the company’s culture, governance and leadership should be strengthened by those with both appropriate industry experience as well as fresh perspectives and that the company would be best served through prompt Board evolution,” the investor said.
A CVS spokesman said the company “welcomes the opportunity to engage with our investors and have productive discussions.”
Best known for its namesake pharmacies, CVS is one of the biggest healthcare companies in the U.S. Last year, it notched about $358 billion in revenue.
In addition to filling prescriptions at its drugstores, CVS furnishes health insurance through Aetna, treats patients at its senior-focused Oak Street clinics, and pays for drugs through its Caremark unit.
The company combined the disparate functions with the promise that it would smooth patients’ experiences, improve their healthcare and bring down costs.
But CVS has fallen short of its original goals for growth and transformation.
Especially problematic has been the company’s recent bet on Medicare health-insurance coverage. CVS’s Aetna expanded enrollment in its Medicare plans just as medical costs were rising and the federal government was changing rules around certain industry billing practices.
Aetna’s Medicare woes have been at the heart of CVS’s financial difficulties this year, including the expected issues with the third-quarter earnings. Other insurers have recently reported similar problems.
Joyner said he would focus closely on the performance of Aetna. He pointed to recently announced improvements in the insurer’s Medicare quality ratings, as well as efforts by CVS to roll out new payment models for its retail pharmacy and pharmacy-benefit businesses.
“The overall company performance is disappointing,” Farah said. “As the year began to unfold and we struggled to deliver on our one-year and three-year commitments, we really just came to the conclusion that it was time for a change.”
Joyner, 60 years old, has worked at CVS or predecessor companies nearly his entire career, including an early stint at Aetna and then at Caremark before CVS acquired the pharmacy benefit manager, or PBM, in 2007.
After the combination, Joyner worked on the integration of Caremark and CVS, which he said prepared him to help bring together CVS’s current units. He retired from CVS in 2019, returning last year to take over leadership of the PBM.
The board chose Joyner partly because his history at the company meant he could start having an impact immediately, Farah said. “It would be very difficult for an outside executive to have the expertise in all phases of health care,” he said.
Farah said the board voted unanimously for the management shift, though he said it was a difficult decision.
Lynch, 62, is a longtime managed-care executive who ran Aetna before becoming CEO of CVS in 2021. She helped preside over the company’s response to the Covid-19 pandemic and wrote a book on leadership.
Under her watch, CVS spent $10.6 billion on the Oak Street clinics business and an additional $8 billion on home-visits company Signify Health, which focuses on Medicare.
CVS now expects its third-quarter earnings, set to be unveiled Nov. 6, to be in the range of 3 to 8 cents a share, or between $1.05 and $1.10 a share on an adjusted basis. Analysts had expected adjusted earnings per share of $1.69, according to FactSet.
The nonadjusted results will include a charge related to store closures and some cost-cutting moves the company is making. The results will also incorporate a charge to record premium deficiency reserves.
CVS will also report that medical costs are still running higher than expected, an issue that has come up in other insurers’ recent reports. Aetna’s medical loss ratio, or the share of premiums spent on healthcare costs, will be around 95.2%, compared with analysts’ expected 91.1%.
